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Boston, MA -- (SBWIRE) -- 01/01/2014 -- Japan's petrochemicals industry will slowly turn the corner in 2014, following a period of volatility and decline. However, BMI's Japan Petrochemicals Report warns that the industry cannot count on domestic demand for growth, while in external markets it struggles with competitiveness in the context of high naphtha import costs and the expected onslaught of cheap product from North America.
Ethylene production has slowed markedly with output levels now at levels not seen for 20 years. Producer margins have been squeezed with the major players reporting much lower profits for the latest financial year. Japanese polymer demand has languished, although producers have been able to pass on higher naphtha costs by hiking product prices, thereby protecting margins. Fibre intermediates, such as purified terephthalic acid (PTA), acrylonitrile (ACN) and caprolactam have been hard hit as have products further downstream such as methyl methacrylate (MMA). The slowing of growth in China and Japan's persistent economic stagnation are to blame. The worst affected segment in 2013 was PP with output slumping by an estimated 8.4% year-on-year (y-o-y) to 1.37mn tonnes, while LDPE fell 7.2% to 1.37mn tonnes and HDPE was down 0.9% to 920,000 tonnes. However, PVC grew 9.9% to 1.93mn tonnes.
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There is some meagre light at the end of the tunnel with the industry hitting a trough by mid-2013. Production indices indicated a move towards positive growth in H213 going into 2014, with chemicals and plastic indices returning to growth, albeit at a low rate and insufficient to mark a fast rebound.
BMI has the following views:
- Many Japanese chemical companies have reported a recovery thanks to the depreciation of the yen, which boosted the profitability of exports. Specifically, the profitability of electronic materials and agrochemicals, which are highly dependent on exports, improved dramatically, while domestic market-oriented products such as those for housing and pharmaceuticals remained strong.
- The domestic market on its own will not be sufficient to lift Japanese petrochemicals. Overall industrial growth will remain sluggish following the recessionary hit of 2008 while GDP growth will remain unimpressive yet steady. In terms of key end-markets, the automotive industry will boost domestic production in relevant petrochemicals segments, such as ABS rubbers and engineering plastics. A slightly better medium-term scenario is envisaged for construction as pent-up demand for residential housing secures growth in PVC consumption, but insufficient to bolster all PVC production. The general outlook is one of cautious and tenuous growth that can be easily outweighed by external shocks.
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